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Labor Department’s Abusive Ruling Targets Consignment Franchise

Case is yet another example of the federal department’s coordinated agenda against franchise small businesses.

By Elizabeth Taylor

In the near-constant struggle against the overreach of big government regulators, small franchisors like Rhea Lana Riner of Conway, Ark., stand at the front lines.

Riner is battling the U.S. Department of Labor over its attack on her children’s consignment franchise, Rhea Lana’s. Like many small-business owners, she started her business in her living room with the goal of giving moms a place to buy and sell “gently loved” children’s clothing and toys. The premise was simple: provide consignors with a profitable way to sell their items by getting personally involved in setting up and running the sales. Consignors who volunteer make sure the event is successful and also get to shop the sales early, ensuring access to the most popular items and sizes. At the end of the sale, consignors can donate unclaimed items to charity. Rhea Lana’s is a winning concept for the consignors and the community.

At first, Riner started small, organizing and holding events in her home. But then she developed software that consignors could use to enter their items online and print barcoded tags rather than handwriting them. Computerization allowed her to organize even bigger events. The events were such a success, she decided to expand her business to give other moms the chance to run their own consignment sales. Franchising provided that opportunity to scale even further.

Today, Rhea Lana’s has franchise consignment sales events in 22 states and more than 60 locations. These periodic, short-term consignment events have featured some 1,200 consignors and utilized the services of roughly 200 volunteers. And the company’s still growing. It was recently ranked No. 1 in the 50 to 99 Franchise Units category by Franchise Business Review and was one of only 10 Arkansas companies to be included in Inc. Magazine’s list of fastest growing privately-held companies.

However, all that could change if the Department of Labor is not reined in. In 2013, DOL found fault with Rhea Lana’s business model, which allows consignors to volunteer. Despite the fact that not one of her volunteers has ever filed a complaint, DOL arbitrarily decided the franchise’s volunteers are employees under the Fair Labor Standards Act. If this ruling stands, the company will be forced to pay them minimum wage and overtime, destroying Riner’s business model.

Although DOL declined to issue a penalty in 2013, it threatened significant future civil monetary penalties if Riner does not comply. DOL even sent letters to all of Rhea Lana’s volunteers notifying them of their right to sue her for back wages, liquidated damages, and attorneys’ fees. Not one of the franchise’s volunteers has heeded DOL’s advice.

The department’s actions not only threaten Riner’s business and personal reputation, they also spread a cloud of uncertainty over her franchisees. This outrageous federal regulatory overreach also impinges Rhea Lana’s ability to grow and sell additional franchises and help more communities.

Perhaps the most abusive aspect of DOL’s actions is that Rhea Lana’s has no method for challenging the agency’s determination in court. DOL asserts its determination letter is not a final action, which would be reviewable by a federal judge. But Rhea Lana’s only choices are to comply with DOL’s erroneous judgement or face significant fines and potential lawsuits.

Rather than roll over as many small-business owners might when threatened with the formidable power of the federal government, Riner is fighting back. She filed a lawsuit against DOL challenging its abusive ruling and demanded a judge review the facts of her case. She hopes the court will rule on her case later this year.

Rhea Lana’s case is yet another example of the Department of Labor’s coordinated agenda against franchise small businesses and the hard working entrepreneurs who are innovating, giving back to their communities, and creating opportunities. There’s one thing for certain: IFA will continue to assist franchisees and franchisors in the ongoing fight against government overreach.

Elizabeth Taylor is vice president of federal government relations and public policy, and counsel for the International Franchise Association. Find her at fransocial.franchise.org

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